Here’s One of the Worst Financial Moves You Can Make

GEORGE PAPADOPOULOS: When, if ever, does it make sense to borrow from a 401(k)?

Ideally, never. Over 90% of present 401(k) plans allow loans and about 1 in 5 participants are currently paying back a loan. I think these figures are absurd. We are making it way too easy to borrow from a fund that is supposed to be for retirement. I firmly believe this is one of the worst moves you can make for your financial future.

It should only be allowed in extreme cases, such as, for example, when you have no funds available at all and you are about to exhaust your last few cans of food. Everyone should have an ample emergency fund in a safe liquid account. For even more peace of mind, if you have enough home equity, you can set up a home-equity line of credit just in case something truly unfortunate happens and your emergency fund is exhausted.

I recently overheard a conversation during which someone asked whether it is a good idea to borrow from the 401(k) plan to get a new car instead of getting a car loan. No, this is never a good idea. How about saving and paying cash for it?

George Papadopoulos is a fee-only wealth manager in Novi, Mich., serving affluent individuals and families. You can follow him at twitter (@feeonlyplanner), connect with him at Google+ or visit his firm’s website.